IBEC, the group that represents Irish business, has launched its pre-budget submission warning that any increase in labour costs, through either a PRSI increase or by pushing more sick pay costs onto employers, would cost jobs and undermine the recovery.
The group also said that collecting the new property tax through the income tax system was the wrong approach - it will make taking up a job less attractive and risks fuelling wage pressures.
The submission sets out a range of fiscal priorities for Government, which focus on supporting job creation and restoring domestic demand - key elements of IBEC’s Driving Ireland’s Recovery campaign, launched earlier this year.
IBEC Director General Danny McCoy said: “The planned €3.5 billion adjustment is about right, but it needs to be done in way least damaging to growth. Any increase in labour costs will make companies less likely to take on new staff and will push already struggling firms out of business. We desperately need to create news jobs, raising tax on work is the last thing we need.
“Research from the OECD shows that an increase in taxes on labour of 1% reduces an economy’s employment rate by about 0.4%. The Government’s proposal for an extra tax on jobs through a statutory sick pay scheme would cost at least 3,500 jobs both directly and indirectly in the economy.
“Any hike in PRSI would have a similar negative effect. During the global crisis the trend internationally has been to reduce taxes on employment in order to get people back to work. Any PRSI increase would fly in the face of international best practice.
Mr McCoy also expressed serious concern about the plan to collect the property tax through the tax credit system. “It is essential that a new property tax is not perceived as a tax on work.
“Collecting the property tax through the income tax system will discourage work and fuel wage pressures, which will make creating new jobs all the more difficult. If it is the chosen system, it should have very few exemptions, so that the tax is not viewed as simply an additional tax on workers.”
Despite the country’s constrained finances, IBEC said that a package of measures to support growth, which involves no net additional cost to the Exchequer, must be introduced alongside steps to raise revenue and cut expenditure. IBEC called for Budget 2013 to support new investment and jobs creation in the economy by:
Supporting investment in Irish SMEs, through the introduction of a roll-over tax relief for entrepreneurs to encourage reinvestment into Irish start-ups and growth companies and by extending and improving the Employment Investment and Incentive Scheme (EIIS) by introducing a risk-sharing model targeted at a wider group of new investors
Introducing innovative measures to support the domestic economy, including the early release of AVC and personal pension funds, a tax or grant package to incentivise home improvement work and a social welfare smart card to encourage spending in the domestic economy
Improving Ireland’s tax offering for international business through enhancements to the R&D Tax Credit Scheme, the intellectual property (IP) tax offering and the tax treatment of skilled mobile workers.
“Austerity alone is not the answer, we need Government to deliver the conditions for economic growth. We need an ambitious growth strategy that supports investment, addresses the weakness in the domestic economy and rebuilds confidence,” concluded Mr McCoy.